There are signs the economy is improving in Japan and technology continues to be a growth area. Howe...
There are signs the economy is improving in Japan and technology continues to be a growth area. However, an increasing number of Japanese companies still face bankruptcy.
Lawrence Chui, senior portfolio manager at Lombard Odier, says: "From a macro top-down perspective, it is still very patchy. However, although the economy is slowing, which reflects the global environment, there are still signs of positive growth."
Hisae Toews, fund analyst for Japanese mutual funds at Fidelity, says: "The economy is growing slowly. Third quarter GDP has expanded by 1% and growth for the year 2000 was 1.25%."
She adds: "This has been growing thanks to private sector capital expenditure and exports. However, exports are falling because demand from the US has reduced."
The technology sector has been the main contributor to market earnings in Japan because of its supply of components for mobile phones. But Chui believes this boom is unlikely to be repeated in 2001.
Chui says: "The share price in technology has been downwards. This has been because of the fall in tech in March 2000 and the downtrend of technology equities in the Nasdaq."
Smaller sectors of the market have been performing well, with Japanese Air Lines reporting the start of a recovery in its earnings. In addition, optical fibre companies such as Furukawa and Sumitomo are performing well as the demand for the transfer of information through optical fibres grows.
Toews says: "In the equities market, sentiment may be turning around. "Over the past six months it has been US-driven and Tokyo is in line with the US market. There is strong correlation between the US and Japan, but as the Japanese economy grows, we expect this correlation to decrease."
The unwinding of cross shareholding is continuing, which Toews believes will be a good thing in the long run.
She says it is a shareholders' stock market and, through the unwinding of cross-shareholding, companies have improved shareholder value.
She says: "Banks are making progress in getting rid of bad debt, but at the same time risk factors and bankruptcies have increased. Although there are companies that the banks and the government are trying to keep alive, those which are too weak are being pushed out of the market."
Chui says the growth of the overall economy will be in doubt if the private sector cannot sustain growth and the Japanese government cannot inject public money into the economy.
He says: "Foreign investors are losing interest in the market and see Japan as going nowhere in terms of reform and sustainable economic recovery."
Mark Wood, manager of the Save & Prosper Japan Growth Fund, believes the Japanese market has recovered slightly following the resurrection of government plans to prop up the market with a state-backed equity fund.
He says sectors such as steel and metals have benefited from the upturn in investor confidence, mainly because of their cheap valuations.
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